Value engineering savings, and who keeps them

Value engineering is finding a cheaper way to achieve the same outcome. A different specification, a simpler detail, a change of sequence. On a job that has come in over budget it is often what makes the project proceed at all.

The commercial question is what happens to the money.

Two very different situations

The client instructs a specification reduction. A cheaper floor finish, a simpler ceiling. That is an omission and a substitution, valued in the ordinary way, and the saving belongs to the client.

The contractor proposes a better method. Same specification, same outcome, achieved more cheaply through the contractor’s own knowledge. The contract did not ask for it and would not have got it without the contractor’s input.

What contracts usually say

Not much. Most standard forms have no value engineering mechanism. A change proposed by the contractor and accepted becomes an instructed variation, valued under the ordinary rules, and the saving therefore accrues to the employer.

Which is why sharing arrangements have to be written in. A gain share, commonly fifty-fifty, applies to savings arising from contractor proposals, and is one of the few clauses that changes behaviour rather than allocating risk.

Where it gets contested

• Was it really a saving? Cheaper to build, more expensive to maintain, is not a saving to an employer that will hold the building.
• Was it the contractor’s idea? Proposals frequently emerge from a workshop and are then claimed by whoever writes the minutes.
• Does the specification still comply? A saving that reduces performance below what was specified is not value engineering, it is a specification change requiring the employer’s agreement.

Recording it properly

Every accepted proposal should have an instruction, a valuation of the omission, a valuation of the substitution, and the net effect stated. If there is a share, the calculation should appear on the face of the account.

Netting the two off and showing one figure hides which part was omitted and which added, and at final account nobody can reconstruct what was actually agreed.

The wider point

Value engineering done in the first weeks, on design not yet finalised, produces real savings. The same exercise done at month nine, on work already ordered and partly built, produces abortive costs, cancellation charges and disruption that frequently exceed the saving.

Timing is worth more than the mechanism.